Capital flees French taxes

France suffered a surge of capital flight in recent months as President
Francois Hollande
pushed through a raft of tax rises and stepped up his campaign against the rich.

Fresh data from the Banque de France show a sudden rise in outflows in October and November, registered in the so-called Target2 payments system of the European Central Bank.

Simon Ward from Henderson Global Investors said the net loss of funds was €53 billion ($67 billion) over the two months, roughly the period when Mr Hollande unveiled a string of tax rises.

A key gauge of the French money supply, six-month real M1, has been contracting at an accelerating rate since Mr Holland’s election in May.

It has fallen to levels last seen in the depths of the crisis in 2008. France’s money data is now flashing more serious warnings than numbers in Italy or Spain. “Taken together, it is clear that there has been a major loss of confidence and funds have been pulling money out of the country," Mr Ward said.

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While France is at no serious risk of a debt crisis, it has been bumping along at slump levels for two years with the youth jobless rate rising to a record 27 per cent.

The economy may have tipped into recession already even before Paris embarks on fiscal tightening of 2 per cent of GDP this year to meet EU deficit targets. Analysts say the double whammy of tax rises and monetary contraction could prove a toxic mix in 2013.

Mr Hollande’s “soak the rich" campaign and a 75 per cent millionaire tax has erupted into controversy since actor Gérard Depardieu renounced French citizenship. Yet the bitter stand-off between France’s Socialist leader and French business is a greater concern. An alliance of private sector groups issued a “State of Emergency" alert in October.

Employers’ group MEDEF said business was “in revolt across the country", warning that bankruptcies were accelerating and firms were slashing investment.